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BIG IDEA: IS DEFICIT PROBLEM NEARLY SOLVED? — In a widely cited new report from the left-leaning Center on Budget and Policy Priorities, Richard Kogan crunches the numbers from the last two fiscal deals (the Budget Control Act of 2011 and the fiscal cliff tax hikes) and argues that just $1.2 trillion more in deficit reduction over 10 years (through any combination of new revenue and reduced spending) would ensure that the federal debt no longer grows faster than the economy.

That figure, debt-to-GDP ratio, is far more important as an economic indicator than the absolute level of debt. Kogan’s report suggests that despite all the doom and gloom and garment rending about the upcoming “death triad” of fiscal crises (debt limit, sequester and continuing resolution), a reasonable deficit reduction deal with goodies for both Rs and Ds and that insures the federal debt does not weigh on economic growth for the next 10 years should not be such a huge lift.

WHY IT SHOULD NOT BE HARD TO FINISH THE JOB… Kogan writes: “That $1.4 trillion in deficit savings would stabilize the debt at about 73 percent of [GDP] over the latter part of the decade. … If one assumes that policymakers will let the ‘sequestration’ take effect, then they would have to find only an additional $257 billion in deficit savings to stabilize the debt. … Even if they split the $1.2 trillion evenly between tax increases and program cuts … the total savings enacted since 2011 would consist of almost $2 in program cuts for every $1 in revenues. That’s because most of the policy savings that policymakers have achieved so far have occurred on the spending side, even after taking [fiscal cliff tax hikes] into account.” Full report: http://bit.ly/11leXyQ

… WHY IT WILL BE ANYWAY (SHORT ANSWER: POLITICS) — Eurasia Group’s Helen Fessenden, David Gordon and Sean West on the fiscal triple threat: “The 2011 spending cuts and 2012 all-revenue fiscal cliff deal accomplished half the grand bargain, and what's left is a dollar-for-dollar agreement to trade new tax revenue via tax reform for health care, and mandatory spending cuts via entitlement reform. This approach, however, seems out of reach, given Republican reluctance to consider any further revenue and the unlikelihood that Obama and Boehner can broker a deal. … Our initial expectation is that Republicans are unlikely to force a full-fledged debt ceiling crisis. Instead, they might force the president to take a short-term increase to push that deadline out beyond the others.”

IMPORTANT POINT — That last line from the Eurasia Group note is pretty critical. Maybe it’s just because it’s too soon. Or because we are all distracted talking about $1 trillion platinum coins and unicorns (NYT’s Paul Krugman goes big-time pro-coin today). But the scary saber rattling and head-in-the-sand debt ceiling impact denial has not really materialized yet. Are we overestimating the likelihood of a debt ceiling death match?

HARD TO BELIEVE FILE: CALIFORNIA BALANCES ITS BOOKS! — L.A. Times’s Chris Megerian: “After five years of crippling deficits, Gov. Jerry Brown announced … that the state is in the black as he proposed a $97.7-billion budget that would increase funds for education and health care while still leaving money on the table. The governor's optimism followed an unanticipated leap in revenue that helped cancel the $1.9-billion deficit estimated only months ago. …

“And the state this year will begin to reap the benefits of tax increases he championed last year. Brown would increase overall spending by 5 percent, buoyed by forecasts of an improving economy and higher tax receipts. His plan includes few of the spending cuts that have characterized recent state budgets.” http://lat.ms/XoOT14

BAD NEWS I: FORGET TAX REFORM — POLITICO’s Jake Sherman and Steven Sloan: “This is supposed to be the year that Washington finally locks arms and tidies up the littered tax code. Don’t count on it. In a perfectly divided Washington, a mix of politics, policy and personality has made a comprehensive rewrite of the nation’s tax system — a top Republican priority — increasingly elusive in 2013. … The fiscal cliff has deepened distrust between the two parties. The politics have become riskier and more complicated. Time is short. And Washington has to first endure battles over the debt ceiling and scheduled spending cuts before tax reform can come under serious consideration.

“‘We’re starting from ground zero in doing this,’ said Rep. Jim McDermott (D-Wash.), a member of the tax-writing Ways and Means Committee. ‘They have this object out there — this kind of mythical goal — but there’s no basis in fact of people actually working together.’ … Privately, that sentiment is echoing through the corridors of power in Washington. … The latest wrinkle came Thursday. House Republicans were deeply discouraged by President Barack Obama’s nomination of Jack Lew as his new Treasury secretary. Lew, according to sources, has privately expressed vocal opposition to moving toward a territorial tax system — a staple of GOP plans for corporate tax reform.” http://bit.ly/XoMCmu

BAD NEWS II: AMEX TO SLICE 5,400 JOBS — Reuters’s David Henry and Jochelle Mendonca: “Credit card company American Express Co. said it would cut about 5,400 jobs, or 8.5 percent of its workforce, as it restructures its business and pay legal bills. The steps will cost the company about $600 million in charges in the fourth quarter after taxes, which will halve its net income. … American Express tends to cut staff at the beginning of recessions. But CEO Kenneth Chenault, speaking to stock analysts after the announcement Thursday, said spending with its cards continues to grow. ‘This is not driven by our view of the macro environment,’ he said.” http://reut.rs/XoQbZK

CHAMBER’S DONOHUE SAYS DON’T DEFAULT — The business groups are starting to turn up the heat on Republicans not to flirt with a disastrous default. Bloomberg’s Peter Cook interviewed U.S. Chamber of Commerce CEO Tom Donohue for broadcast on the BGOV Sunday show. Donohue on the consequences of defaulting on our debt: “It would be a mistake to default on the debt. There's no question that that would have so many unforeseen circumstances that that would be a bad thing to do.” http://bloom.bg/VStL1Q

PHRASE OF THE DAY: “Bad thing to do.”

TREASURY NO. 2 NAME GAME — People in banking circles continue to chatter about a possible markets-centric deputy to Jack Lew at Treasury. One little birdie emails: “How about Lou Susman? Finance chair for Obama in ‘08 and former vice chairman at Citi and currently ambassador to the U.K. He's been in London almost four years now.” … Now you can play along at home! Email us your picks for a market jockey Lew No. 2.

THIS MORNING ON POLITICO PRO FINANCE — Zachary Warmbrodt and MJ Lee on the interest in who could be Lew’s deputy at Treasury … MJ Lee on what former Bureau of Engraving and Printing officials think of Lew’s signature … Kate Davidson with a roundup of all the reaction to CFPB’s “qualified mortgage” rule … To learn more about Pro's subscriber-only coverage — and to get Morning Money every day before 6 a.m. — please contact Pro Services at (703) 341-4600 or info@politicopro.com.

GOOD FRIDAY MORNING — Coming soon: The Morning Money Oscar contest. We are picking “Argo” to take home the big prize, just because it’s the only one of the nine we have had time to see. Must read: NYT’s A.O. Scott on today’s A1 on how Hollywood is making high-quality movies for us grownups again. http://nyti.ms/USXImY. In the meantime, send your tips and comments: bwhite@politico.com; and follow on Twitter: @morningmoneyben and @POLITICOPro.

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DRIVING THE DAY — Obama meets with Afghan President Hamid Karzai at the White House this morning, and the two leaders hold a joint news conference in the East Room this afternoon … International trade data at 8:30 a.m. expected to show headline deficit dipping to $41.2 billion from $42.2 billion … Treasury budget at 2 p.m. expected to show a $20 billion deficit … Wells Fargo reports fourth-quarter results this morning, kicking off a fourth-quarter earnings season in which banks have an odd problem (see below).

BIG BANKS: MO’ MONEY, MO’ PROBLEMS — WSJ’s Robin Sidel: “U.S. banks are struggling with a problem most people would love to have: too much cash. But the flood of deposits into U.S. financial firms, at a time when many lenders are having difficulty making new loans, spells trouble for the industry as banks prepare to post fourth-quarter numbers. … Deposits reached a record $10.6 trillion at the end of 2012, according to Market Rates Insight. …

“Meanwhile, the share of each deposit dollar that banks lend out hit a post-financial-crisis low in the third quarter, according to data tracker SNL Financial. … Extra cash can help cushion banks in an economic downturn, but it also helps to explain why banks’ net interest margin — the sum they collect by pocketing the difference between the interest they pay to depositors and the rate they charge borrowers — has fallen sharply.” http://on.wsj.com/13mVuMR

TREASURY IN TRANSITION –

LARRY FINK ON LEW — Blackrock CEO Larry Fink, himself once mentioned as a candidate for Treasury: “Jack Lew is an excellent choice to serve as the next secretary of the Treasury. I’ve known and worked with Jack for many years and believe he is a superb choice to help President Obama confront the critical fiscal challenges that the federal government must address with real action in the months ahead.”

DONOHUE, NICHOLS ON LEW — Per AP, Chamber’s Donohue said of Lew: “‘One of the realities of Mr. Lew's appointment is the challenges we face in the country right now — the cliffs we have in front of us. … I think Jack is a very experienced fellow on the issues of debt, deficits and budgets.’ … Donohue called Lew a ‘skilled operative,’ a ‘vigorous and strong person,’ and a ‘tough dude.’ Rob Nichols, the president and CEO of the Financial Services Forum, a major banking industry group, said: ‘Given his experience in the government and private sector, Mr. Lew is well-suited for the job, especially at a time when Washington must come together to address our debt situation and put our nation on a long-term fiscally sustainable path.’” http://bit.ly/XU9CxM

‘WAVE OF SCRUTINY’? — FT’s James Politi reports Lew’s nomination brought “a mixed reaction from Congress and business and herald[ed] a wave of scrutiny during the looming confirmation hearings. … ‘Since Mr. Lew participated in numerous budget negotiations with Congress and with four consecutive years of over $1 trillion deficits, the American people deserve to know not only that this nominee is qualified for the job, but also what policies the White House supports to get federal spending under control,’ said Orrin Hatch, the top Republican on the Senate finance committee, which will lead the confirmation process. …

“Mr. Lew would succeed [Timothy] Geithner, who has held the position of Treasury secretary throughout Mr. Obama’s first term, beginning during the depths of the financial crisis. Mr. Geithner was heartily praised by Mr. Obama and received a big round of applause from the audience during the event to nominate Mr. Lew. … John Engler, president of the Business Roundtable, which represents some of America’s largest blue-chip companies, added that his group had a ‘good relationship’ with Mr. Lew.” http://on.ft.com/RJ9CNN

CURRENT M.M. LEW CONFIRMATION ODDS — 90 percent

GEITHNER RECORD HERALDED — WP’s Neil Irwin: “[Geithner] was not a highly visible politician or statesman like previous Secretaries John Connally and James Baker. … But make no mistake about it: Geithner has been among the most important Treasury secretaries in history. Even if he never holds another public job, he has secured a place among the most consequential shapers of economic policy of the 21st century. Geithner took office at an extraordinary time, with an extraordinary assignment. In the fourth quarter of 2008, when he was tapped for Treasury secretary, the U.S. economy was contracting at an 8.9 percent annual rate, the steepest decline since the Great Depression.”

THE FIREFIGHTER — “Obama hired him for a very specific task: To stop the bleeding. Geithner was, fundamentally, a crisis fighter, a man who has spent a lifetime wrestling with how to address a financial system in the midst of collapse. It is what he did as a young Treasury attaché in Japan in the early 1990s, as a more senior Treasury official dealing with emerging markets crises later that decade, at the International Monetary Fund in the early Bush years, and at the New York Fed in the six years before joining the Obama administration.” http://wapo.st/USQoYt

TOUGH UNDER PRESSURE — BusinessInsider’s Timothy Geithner: “The pressure on Mr. Geithner during [the financial crisis], both as head of the New York Fed and then as Treasury secretary, was unfathomable. In both roles, Mr. Geithner made many extremely important and controversial decisions. He made these decisions under extraordinary time pressure and political pressure, while under intense public scrutiny. Some of these decisions were immediately blasted, from both political and economic perspectives, with Mr. Geithner personally being torn to shreds. …

“Mr. Geithner, the critics roared, was way too soft on Wall Street. … But here's the big picture: The big picture is that the United States financial system and economy have recovered from near-disaster in 2008-09. And the hyperinflation and dollar-crash and return to the stone age that many doomsayers predicted would follow have not come to pass.” http://read.bi/UPyeDa

GEITHNER ON GEITHNER: TIME TO CHILL – NYT’s Annie Lowrey: “Looking forward, Mr. Geithner has no plans. A regulator of Wall Street but not a creature of it, he will probably be the least likely former Treasury secretary to land there. ‘I’m going to take a long time,’ he said in the second of two exit interviews. …

“Looking back, he is remarkably sanguine. He is comfortable with his decisions: The policy choices available to him were far from ideal, he said, but his team did the best it could within the realm of the politically possible. ‘It was a very bad crisis. No playbook. No road map. No clear precedent. … If we had a different set of constraints, particularly in fiscal policy, then I think that the economic outcome could have been modestly better.” http://nyti.ms/WVav2Q

ALSO FOR YOUR RADAR –

SPOOKY NEWS: MEET THE ZOMBIE HOUSES – Reuters’s Michelle Conlin reports “there are a growing number of people finding themselves legally liable for houses they didn’t think they still owned because the banks eventually decided it wasn’t worth their while to complete the foreclosures. Those people are in possession of ‘zombie titles.’” http://reut.rs/VoXD8K

KHUZAMI DINGED — Not everyone joined in praise for departing SEC Enforcement Director Robert Khuzami. Better Markets argues Khuzami “not only hasn’t prosecuted the crimes of the past on Wall Street, he’s made it tougher to prosecute them in the future as well.” http://bit.ly/U9lZBc

LONG-TERM UNEMPLOYED FINDING JOBS — WSJ’s Ben Casselman: “The epidemic of long-term unemployment … is finally showing signs of easing. The long-term unemployed — those out of work more than six months — made up 39.1 percent of all job seekers in December, according to the Labor Department, the first time that figure has dropped below 40 percent in more than three years. The problem is far from solved. Nearly 4.8 million Americans have been out of work for more than six months, down from a peak of more than 6.5 million in 2010 but still a level without precedent since World War II.” http://on.wsj.com/VprPR6

LONG READ: HOW D.C. BOOMED — NYT’s Annie Lowrey goes long in the magazine on how Washington became a boom town: “[After the housing bubble] burst, a remarkable inversion occurred: as the country withered, Washington bloomed. Since 2007, the regional economy has expanded about three times as much as the overall country’s. By some measures, the Washington area has become the richest region in the country. It is now home to the three highest-income counties in the United States, and seven out of the top 10.

“The growth has arrived in something like concentric circles. Increased government spending has bumped up the region’s human capital, drawing other businesses, from technology to medicine to hospitality. Restaurants and bars and yoga studios have cropped up to feed and clothe and stretch all those workers, and people like [real estate developer] Jim Abdo have been there to provide the population — which grew by 650,000 between 2000 and 2010 — with two-bedrooms with Wolf ranges.” http://nyti.ms/10k8C7G

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